Halozyme Therapeutics Inc (HALO) 2023 Q2 法說會逐字稿

Good afternoon. My name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Halozyme Second Quarter 2023 Financial and Operating Results Conference Call. (Operator Instructions) Please note this event is being recorded.

I'll now turn the call over to Tram Bui, Halozyme's Vice President of Investor Relations and Corporate Communications. Please go ahead.

Thank you, operator. Good afternoon, and welcome to our second quarter 2023 financial and operating results conference call. In addition to the press release issued today after the market close, you could find a supplementary slide presentation that will be referenced during today's call in the Investor Relations section of our website.

Leading the call will be Dr. Helen Torley, Halozyme's President and Chief Executive Officer, who will provide an update on our business; and Nicole LaBrosse, our Chief Financial Officer, who will review our financial results for the second quarter 2023.

On today's call, we will be making forward-looking statements as outlined on Slide 2. I would also refer you to our SEC filings for a full list of risks and uncertainties. During the call, both GAAP and non-GAAP financial measures will be discussed. Certain non-GAAP or adjusted financial measures are reconciled with the comparable GAAP financial measures in our earnings press release and slide presentation.

I'll now turn the call over to Dr. Helen Torley.

Thank you, Tram. Good afternoon, everyone. I'll begin on Slide 3.

We are very pleased with our second quarter 2023 results where we delivered strong year-over-year top line and bottom line growth.With our partners, we announced multiple milestone varying value-creating events for the next wave of subcutaneous products that we project will deliver meaningful royalty revenues of Wave 3 products.

Most notably, our argenx's VYVGART Hytrulo that is co-formulated with ENHANZE received FDA approval for generalized myasthenia gravis in June, making this the sixth approved product utilizing ENHANZE. We're excited that co-formulated products using Halozyme's ENHANZE technology continue to deliver substantial potential benefits for patients and for the health care system.

Another notable event in the quarter was the publication on June 30 of the final CMS guidance for the Medicare drug price negotiation program, which was created under the Inflation Reduction Act. The final guidance applies to 2026 and to Medicare Part D drugs. The final guidance treats fixed combination products, which include 2 or more active ingredients or moieties as distinct drugs for the purposes of applying the negotiation provision. A combination product will be treated as distinct from a product that contains only 1 of the combination products active ingredient.

We believe that if the single ingredient product becomes subject to negotiation at a capped price, the fixed combination product will be subject to its own separate negotiation eligibility timeline. Today, our fixed combination products are health care practitioner-administered and covered under Medicare Part B. In light of the Part D final guidance, our assessment remains that if CMS continues this approach regarding combination products when the Part B drugs become eligible for negotiation, our partner subcutaneous drugs, which are co-formulated with ENHANZE, would be treated as separate from the IV versions of these drugs.

We believe a capped price imposed on any IV version of the drug would then not apply to the ENHANZE combination product. Instead, the ENHANZE combination product would be subject to its own negotiation eligibility timeline. We believe this outcome is appropriate because of the added patient benefit that is represented by the ENHANZE combination product. Our ENHANZE enzyme, rHuPH20, is listed by the FDA as an active ingredient in various combination products.

Closing out these highlights, I'm also delighted to announce that our clinical test of our high-volume autoinjector was a success, confirming both the feasibility and tolerability of rapid injection of 10 milliliters of a biologic with our high-volume autoinjector. All of this progress strengthens our confidence in achieving our updated full year 2023 financial guidance, where we have raised our non-GAAP EPS range and increased the lower end of the range for total revenue and for EBITDA.

With that summary, let me provide some details on the events during the quarter that are driving revenue in 2023 and beyond.

Turning to Slide 4, Halozyme is a leading drug delivery platform company with a diversified and robust portfolio, which includes our ENHANZE royalty business, our autoinjector technology business, and our specialty commercial products. As an established leader in rapid subcutaneous drug delivery with ENHANZE and our differentiated autoinjector technology, we remain the partner of choice across the industry.

Moving now to Slide 5. In the second quarter, our partners make significant progress with their commercialization and development activities related to our Wave 3 products. Wave 3 is comprised of 4 products that are projected to launch between 2023 and 2025, and which are expected to result in strong and durable long-term growth for Halozyme. On June 20, the first of our Wave 3 products, VYVGART Hytrulo with ENHANZE for generalized myasthenia gravis, received FDA approval and launched shortly thereafter. The approval and launch resulted in milestone revenue to Halozyme in the quarter.

Halozyme will also receive royalties on net product sales. Shortly thereafter, on July 17, argenx announced positive data of the ADHERE study, which evaluated VYVGART Hytrulo with ENHANZE in patients with chronic inflammatory demyelinating polyneuropathy, or CIDP. With a 61% reduction in risk of relapse versus placebo, this marks the second positive readout of the 6 indications for VYVGART Hytrulo that are currently being evaluated.

Moving on to the second of our Wave 3 products that had positive clinical study results in the quarter. On July 13, Roche reported that their Phase III OCARINA II study of OCREVUS subcutaneous coformulated with ENHANZE met the primary and secondary endpoints in patients with relapsing forms of multiple sclerosis or with primary progressive multiple sclerosis. The study evaluated subcutaneous OCREVUS total treatment time in 10 minutes, which compares with multiple hours of treatment time with CID.

We are excited by all of this progress and what it can mean for patients, as you will see summarized on Slide 6. ENHANZE, which is an active ingredient with independent actions when coformulated with our partner product, allows for rapid subcutaneous delivery of large volume drugs. In multiple published studies, subcutaneous delivery decreases treatment time and treatment burden for patients, resulting in an improved patient experience. And as we saw with DARZALEX subcutaneous, there may also be a lower rate of potentially life-threatening infusion-related reactions, which is a clear clinical benefit for patients.

Subcutaneous delivery of drugs coformulated with ENHANZE have also been demonstrated to translate into meaningful cost savings and advantages to the healthcare system including decreased healthcare practitioner time and resource utilization, greater patient throughput and decreased drug wastage. As global infusion site capacity constraints become more acute, subcutaneous delivery can play a vital role in allowing more patients to be able to access therapy and to receive their planned treatment on time.

I'll now provide an overview of our financial performance. For the quarter, we reported total revenues of $221 million, representing a 45% year-over-year increase. The key driver of revenue and revenue growth is our royalty revenues, which are shown on Slide 7.

Second quarter 2023 royalty revenue increased 31% year-over-year to a record $111.7 million. We project continued quarter-on-quarter growth of royalty revenues throughout the year. For the full year, we're maintaining our projection of $445 million to $455 million in royalty revenues, representing 23% to 26% growth over 2022. DARZALEX FASPRO and PHESGO are Wave 2 products or the 2023 royalty revenue growth drivers. Also included in the royalty revenues is the contribution from our small-volume autoinjector business, which remains stable and largely driven by Teva's generic EpiPen.

I will note that for 2023, we are assuming nominal royalty revenues for VYVGART Hytrulo and no subsequent subcutaneous royalty revenues. And this is based on the timing of approval and the timeline it takes for physicians to be confident regarding reimbursement.

Moving on to DARZALEX and Slide 8. Janssen's DARZALEX growth remains impressive with combined IV and subcutaneous revenue increasing approximately 23% year-over-year on an operational basis in the second quarter of 2023 to approximately $2.4 billion. This increase was driven by share gains in all regions and continued growth of the market, which was previously reported with the result of increased penetration into the front-line treatment setting. Analysts project annual DARZALEX sales at $16.7 billion in 2028.

DARZALEX subcutaneous is a globally established choice for physicians who are using DARZALEX for the treatment of multiple myeloma patients with 90% share in the United States and an estimated 80% share outside the United States. With the overall brand performance now driven by the use of the subcutaneous formulation, total DARZALEX brand growth, which was 23% year-over-year, is also the key metric to measure DARZALEX subcutaneous growth and performance.

Turning now to Roche's Phesgo, which is shown on Slide 9. Phesgo is a combination of Perjeta and Herceptin for subcutaneous injections for patients with early and metastatic HER2-positive breast cancer. This allows for a single 5- to 8-minute subcutaneous treatment compared with a much lengthier IV treatment schedule. Of note, 85% of patients preferred Phesgo's subcutaneous administration over the IV formulation of Perjeta and Herceptin.

For the first half of 2023, Roche reported Phesgo sales of CHF 517 million, an increase of 69% year-over-year. Phesgo is now launched in 38 countries, a recent increase of 8 countries, and represents 35% share, which Roche recently commented that they are expecting to grow to 50% share over time. Roche also recently highlighted that share in Great Britain is 92% and that U.S. share continues to grow. We're also anticipating a potential path for patient self-administration of Phesgo with an on-body injector with pivotal Phase I data from Roche's study expected in the second half of the year.

I'll turn now to our Wave 3 products, which are shown on Slide 10. As noted earlier, these products represent the next group of royalty revenue opportunities for Halozyme with 4 potential launches projected between this year and 2025.

Let me start with the EFGARTIGIMOD. The launch of argenx's VYVGART intravenous formulation in patients with generalized myasthenia gravis is progressing well, with a growth of 24% quarter-over-quarter to $269 million in the second quarter of this year. Analysts project that EFGARTIGIMOD will be a multibillion-dollar annual revenue brand in 2028. The recent FDA approval and launch of VYVGART Hytrulo with ENHANZE provides a new 30- to 90-second health care practitioner-administered subcutaneous injection option with a short-term monitoring time for patients with generalized myasthenia gravis.

EFGARTIGIMOD is argenx's flagship pipeline product and is being developed with ENHANZE in the total of 6 autoimmune disease indications today, and 4 of these indications are being developed as a subcutaneous-only delivery. Data in the first of these subcutaneous-only indications was recently reported by argenx. On July 17, argenx announced positive top line data from the ADHERE study, evaluating VYVGART Hytrulo with ENHANZE for chronic inflammatory demyelinating polyneuropathy. The study met its primary endpoint with a statistically significant p-value of 0.000039 and demonstrated a 61% reduction in the risk of relapse with VYVGART Hytrulo compared to placebo.

The safety and tolerability profile were consistent with the confirmed safety profile of VYVGART and we look forward to argenx presenting detailed data from the study at an upcoming medical meeting and to preparing for global regulatory submissions. argenx had commented that work is now underway to evaluate the size of the addressable CIDP population and the opportunity, which is informed by the positive ADHERE study data. We continue to predict 2 additional study readouts for VYVGART Hytrulo with ENHANZE this year with data in idiopathic thrombocytopenia purpura and pemphigus expected in the fourth quarter.

Moving now to Roche. We are looking forward to the potential approval of Tecentriq subcutaneous with ENHANZE in the third quarter with Roche's U.S. PDUFA day of September 15, 2023. Subcutaneous atezolizumab has the potential to offer greater convenience for patients and physicians with an approximately 7 minutes subcutaneous administration time, which compares to 30 to 60 minutes for the IV treatment. We believe this represents a significant advancement for patients, health care providers and for payers. For the first half of 2023, Roche reported IV Tecentriq revenues of CHF 1.9 billion, an increase of 12% year-over-year, which is driven by growth in the adjuvant non-small cell lung cancer and frontline hepatocellular cancer.

Moving now to OCREVUS. This is the third of the 4 Wave 3 opportunities that have now announced positive Phase III data with ENHANZE. The OCARINA II study met the primary and secondary endpoints supporting proceeding with regulatory filings for OCREVUS subcutaneous injection co-formulated with ENHANZE, demonstrating the potential for treatment in 10 minutes, which compares to hours for the intravenous formulation. We look forward to Roche sharing detailed results of the trial at an upcoming medical meeting and to submitting data for regulatory approval to health authorities globally. OCREVUS as an IV continues its impressive growth trajectory.

In the first half of the year, Roche reporting OCREVUS revenues of CHF 3.2 billion, which represents an increase of 15% year-over-year and annualizes now to greater than $7 billion. With a 22% share of patients globally and with more than 300,000 patients treated, OCREVUS remains the market leader in the U.S. and EU signed. Roche expects further market share gains with the approval of subcutaneous administration of OCREVUS, creating the possibility for patients who receive treatment in additional Multiple Sclerosis Centers. Those that don't have IV infusion infrastructure or where there are IV capacity constraints, continue to be adding new growth opportunity for the brand.

The fourth Wave 3 product is subcutaneous nivolumab. Bristol-Myers Squibb is also progressing with their Phase III registration study of subcutaneous nivolumab, utilizing ENHANZE in patients with renal cell carcinoma. BMS reported Opdivo IV sales of $2.1 billion in the second quarter of 2023, an increase of 5% year-over-year, excluding FX. We are delighted with the advancement and pending regulatory approval for a Wave 3 pipeline. In total, these products represent substantial near-term new royalty revenue opportunity for Halozyme. Analyst projections for the total product sales for these products is approximately $35 billion in 2028, including the IV and subcu formulations. I will note that this is significantly higher than the opportunity for our Wave 2 products, which are driving our strong royalty revenue growth today.

Moving to Slide 11, I'll touch on some highlights from our Wave 4 partnered products development pipeline with ENHANZE. Our longer-term growth trajectory is supported by these Wave 4 products with the development continues potential for launching in the 2025 to 2027 timeframe. Wave 4 is comprised of 10 partnered products, 2 of which are in Phase III and the remaining 8 are in ongoing Phase I clinical testing or have completed Phase I study. Our goal is to continuously expand the number of products in development and to advance products through development to regulatory approval and launch, adding multiple sustainable new royalty revenue streams.

The 2 most advanced products are Janssen's subcutaneous formulation of amivantamab, and Bristol-Myers Squibb's excellent combination of nivolumab plus Relatlimab with ENHANZE. Both are already approved, designed a treatment and the subcutaneous formulation are in Phase III clinical testing. Notably, Janssen presented data at ASCO this year from their Phase I PALOMA study for subcutaneous amivantamab in solid malignancies. The study was designed to identify the Phase II dose. Also reported was data that showed a reduction in all-grade infusion-related reactions from 67% with the IV regimen to just 16% with subcutaneous amivantamab with ENHANZE. This data point reinforces the opportunity to drive clinical benefit for patients with our ENHANZE technology.

Let me comment now on new deal. We remain highly engaged in new partnership discussions for ENHANZE and for our auto-injector technology. It remains our goal to sign a new ENHANZE deal in new high-volume autoinjector deal and a new small volume auto-injector deal this year. We believe that clarity on the IRA and the recent positive results of our HVI clinical study will serve to further expand and expand these discussions.

Turning now to Slide 12, I'll provide a review of the high-level results of the HVI clinical study. We were delighted that it was such a success. The results demonstrated the feasibility of administering a subcutaneous injection of 10 mls of a representative biologic, which is immune globulin 10% with ENHANZE in approximately 30 seconds using our high-volume auto-injector. The injection was delivered successfully, was well tolerated and all 23 subjects stated that they would be willing to have the injection by the auto-injector again. No one today to our knowledge has been able to effectively inject 10 mls of a biologic subcutaneously in approximately 30 seconds.

With the combination of our 2 proprietary and differentiated technology ENHANZE and our auto-injector technology, we're in a unique position to demonstrate that this could be done. With these positive results, we expect to advance the strong interest that we have already garnered. The high volume auto-injector will offer a truly differentiated solution for patient-friendly, high-volume subcutaneous for delivery that can be utilized across the spectrum of disease areas for both small molecule drugs and for biologics.

Let me turn now to our commercial portfolio. XYOSTED is our weekly virtually painless subcutaneous testosterone replacement treatment, which is delivered by auto-injector. Our strategy is to convert patients who are not achieving their treatment goals with intramuscular injections of their testosterone replacement treatment. In the second quarter, we saw strong sequential demand growth with 38% demand growth in the first half of 2023 compared to the first half of 2022. Our goal remains to achieve approximately $100 million in XYOSTED revenue in 2023, representing a 20% increase from the run rate following the acquisition. And we also remain focused on gaining access for TLANDO, our oral testosterone treatment. At this time, we have not yet reached agreement with pharmacy benefit managers under the appropriate rebate rates. And until this access is established, we're continuing to project low revenues for TLANDO in 2023.

I'll move now to our capital allocation priorities, which are shown on Slide 13, and I'll focus on our approach to growth through M&A. Investing in M&A is a key strategy to maximize our revenue growth and durability, which we believe will create long-term value for all of our stakeholders. We're continuing to focus on evaluating platform new technologies that can expand our leadership in drug delivery with a clear line of sight to increasing and expanding the durability of our revenues. We're focused on technologies that can be broadly licensed, leverage our demonstrated expertise and partnering with biopharma companies.

Now with that, I'm going to turn the call over to Nicole, who will discuss the financial results for the second quarter of 2023. Nicole?

Thank you, Helen. Our strong financial performance in the second quarter sets us up well for another record year. We achieved record revenues of $221 million for a total of $383.2 million year-to-date, in line with our plans and supporting our updated financial performance expectations for the full year. Our cash, cash equivalents and marketable securities were $348.3 million as of June 30, 2023, compared to $275.6 million as of March 31, 2023. Our balance sheet remains strong with continued projected cash generation and EBITDA growth in 2023 and beyond.

Our net debt-to-EBITDA ratio is 2.9x as of June 30, 2023, which is expected to continue to decrease each quarter with EBITDA growth. We completed the full $150 million in share buyback planned for the year in the first quarter. We will continue to evaluate our future use of capital in longer-term market conditions and other factors, while also preserving capital to fund revenue growth and durability through M&A.

Turning now to Slide 14 for our detailed financial results for the second quarter of 2023. Recall that we closed the Antares acquisition last year, partly through the second quarter on May 24, 2022. And therefore, the year-over-year comparison is impacted by a full quarter versus a partial quarter of contribution from the Antares business. Revenue for the second quarter was $221 million compared to $152.4 million for the second quarter of 2022. The 45% year-over-year increase was largely driven by the strength in growth in ENHANZE revenue streams related to royalties and an increase in milestones due to the approval and launch of VYVGART Hytrulo, as well as the addition of product sales as a result of the Antares Pharma acquisition.

Royalty revenue for the quarter was $111.7 million, an increase of 31% compared to $85.3 million in the prior year period, driven by continued strong uptick of Janssen's subcutaneous DARZALEX as well as Roche's Phesgo. Research and development expenses for the second quarter were $19.7 million compared to $15.5 million in the second quarter of 2022, primarily due to an increase in compensation expense related to the ongoing combined larger workforce to support the device platform in regulatory, quality and manufacturing, as well as planned investments in ENHANZE.

SG&A expenses were $38.9 million compared to $57.5 million for the second quarter of 2022. The decrease year-over-year is primarily due to onetime transaction costs that occurred in the second quarter of last year of approximately $38 million, offset by an increase in compensation expenses related to the ongoing combined larger workforce, including the addition of commercial resources in sales and marketing for our testosterone replacement therapy products.

EBITDA in the second quarter was $115.1 million compared to $46.6 million in the second quarter of 2022, reflecting the strong year-over-year revenue performance. When adjusting for onetime transaction costs in the second quarter of 2022, adjusted EBITDA increased from $87.8 million or 31%. GAAP diluted earnings per share was $0.56 in the second quarter and non-GAAP diluted earnings per share was $0.74.

Turning now to Slide 15, where we are updating our full year 2023 guidance to reflect our strong results to date. We are increasing the lower end of total revenues and now expect total revenues of $825 million to $845 million, an increase from $815 million to $845 million, representing growth between 25% and 28% over 2022 total revenue. We expect total revenue growth to be primarily driven by continued strength in our ENHANZE Wave 2 products, DARZALEX, SC and Phesgo, as well as a full year of Antares product sales in auto-injector loyalty contribution.

We are maintaining our royalty revenue expectation of $445 million to $455 million, an increase of 23% to 26% year-over-year. We are increasing the lower end of EBITDA guidance and now expect EBITDA of $420 million to $440 million, an increase from $415 million to $440 million, representing growth of more than 30% over 2022 EBITDA, which excludes the impact of amortization costs related to the Antares acquisition.

And lastly, we are increasing our non-GAAP diluted earnings per share guidance to reflect both the strong results and the impact of our share repurchases that occurred earlier in the year, and now expect non-GAAP diluted earnings per share of $2.65 to $2.75, with an increase from our prior guidance range of $2.50 to $2.65.

With that, I'll now turn the call back over to Helen.

Thank you, Nicole. Let me conclude by expressing my sincere appreciation to the Halozyme team and our partners and collaborators for the strong progress throughout the first half of 2023. This is establishing a strong growth trajectory for 2023 and beyond. We remain focused on advancing and expanding our diverse and robust portfolio of products that are enabled by our leading drug delivery platform, ENHANZE and are differentiated auto-injectors.

In the second half, we project another product approval with the Tecentriq subcutaneous PDUFA date in September. There's also the potential for additional regulatory submission based on the 2 recent positive Phase III data readouts for VYVGART Hytrulo in CIDP and for OCREVUS subcutaneous with ENHANZE. We're expecting several additional late-stage study data readouts and amendments related to progress in expanding our ENHANZE and our autoinjector partner agreement.

With that, we would now be delighted to take your questions. Operator, would you please open the call for the Q&A?

(Operator Instructions) Our first question is from Mohit Bansal with Wells Fargo.

Congrats on all the progress here. PP question. So when you talk to your potential partners regarding partnering opportunities, how much does IRA come into discussion? Also, how do partners think about a lack of patent protection for ENHANZE standalone technology after 2027?

Thanks, Mohit. With regard to conversations with partners, I'll divide it into potential partners where I will say the IRA does not come up. It may come up more now that there's clarity following the Part D guidance being issued, but it really isn't a focus of conversation. What we really are focused on is the clinical benefit and the differentiation that ENHANZE can bring or that our autoinjector can bring. And so, I would say, conversation is still very focused on that differentiation and clinical benefits. For our current partners, after the issuance of all the final Part D guidance, we're happy reaching out to a few of those partners and initiated some conversations, and I will say that they are generally aligned with us in terms of what we believe this can mean. And so, that has become a bit of a conversation, Mohit.

Let me turn now to the patents. If you recall the way our contracts are structured, we received royalties for a period of 10 years after the first commercial sale. And again, as we talk to potential partners, they're really focused on that, recognizing if there is patent protection, which would be granted if a co-formulation patent was granted, there would be a higher royalty rate. And in the event that there would not be any co-formulation patent and our composition of matter patents that expired, we would pay the lower royalty rate. And they seem to be very comfortable with that. And so far, as you know, the majority of our partners are full steam ahead to identifying novelty that can result in co-formulation patents because they also want to protect their inventions. So, it really has not held us back. You can see a lot of our products are in ways for, will not launch after 2027. So I think that gives you a nice bit of evidence that we are focused on. This is the only way that you can deliver high volume rapidly and the opportunity for co-formulation patents gives them that protection on their inventions.

The next question is from Vikram Purohit with Morgan Stanley.

This is Gospel on for Vikram. We have 1 question. Could you provide some color on what your pipeline or backlog of new potential partners look like and which types of products they are looking to leverage ENHANZE for?

Yes. As we've mentioned, we are working for signing new deals for ENHANZE on its own, ENHANZE with the high volume autoinjector and also the small volume autoinjector. And I would say that for ENHANZE in the high-volume autoinjector not surprisingly, these are really focus on 2 types of products, either large volume IV drugs that have the potential to go subcu or subcutaneous drugs today that perhaps have the opportunity to be extending the dosing interval. The majority are focused around antibodies rather than small molecules as well. So, really where we played before, that is still where people are interested.

Now obviously, high volume autoinjector volume would be speaking there is anything between 3 and 10 mls. For the larger volumes, obviously, that would be by a syringe and a push. Small volume autoinjectors, obviously there are other choices out there where we are seeing a lot of interest in our small volume autoinjectors for people who are looking for that reliability. That is what differentiates and an carries autoinjector, it's been tested in many cases to 99.999% reliability. So people are looking for emergency use want that. People who've got expensive drugs want that too, because you don't want to have the patient buy the drug and be unable to administer because of failures. So, I'd say, high reliability drugs, high expense drugs. And then finally, there's interest also from companies who've got viscose fluids. With XYOSTED and Makena have demonstrated the ability to inject some pretty viscous fluid. That remains an unmet need with the off-the-shelf small-volume autoinjectors, and that's an area where we certainly have interest as well.

The next question is from Michael DiFiore with Evercore ISI.

Congrats on all the progress. 2 for me. 1, prior to argenx's CIDP top line and subcu OCREVUS trials access, the stock did get a nice boost after the final CMS Part D guidance documents came out on June 30. And from your prepared remarks, it sounds like you are more optimistic about the future. Could you perhaps offer any further color on whether or not CMS does, in fact, considers HALO's product to be fixed-dose combination products and what your potential partners are saying about this? Is there any reason to believe that the future Part B guidance documents will not resemble Part D? And then I have a follow-up.

All right. Thanks for that, Mike. And yes, I would say, we were pleased when we did see the final guidance that was consistent with the earlier guidance, noting as you say, this is the Part D guidance, and most of our drugs are Part B. But what the Part D guys is really, I think, very nicely reaffirm that for 6 combination products, which include 2 or more active ingredients as distinct drugs with purposes that found these are going to be treated differently in terms of the negotiation time line from a separate product of just 1 of the ingredients. That is what we have interpreted in March when the draft guidance came out. And despite comments and questions coming in, in response to questions coming in, CMS reaffirmed that for the Part D drugs.

Now, as you know, ENHANZE is designated by the FDA as an active ingredient. And so, we feel that this was a great recognition of the clinical benefit that drugs -- that are in combination where there's 2 active ingredients and obviously ENHANZE is bringing the clinical benefit of being able to give it in a rapid subcu injection. In some cases, we can also reduce infusion-related reactions. So, clearly fitting into this intent of CMS with the IRA.

We have not received any specific feedback from CMS as to whether they have provided a comment to say doesn't hand fit in. We're basing our confidence on the fact we are an active ingredient and the Part D guidance is very clear on 2 active ingredients being treated separately. Our experts believe given that this was a specific question that was asked in the Part D final guidance that there is a good probability, that there won't be a change between Part B and Part D. But obviously, we can't say that with absolute confidence until we see the Part B guidance.

Got it. That's very helpful. And my follow-up question is, I may have missed this in the opening comments, but at least back on your Q1 call, the Phesgo conversion in Germany seems to be uniquely low compared to other ex-U.S. geographies. And my question is, is there anything unique in Germany in terms of how physicians practice relative to the rest of the EU, that would explain the comparatively low Phesgo conversion there?

Yes. We've seen, and I can't speak specific to Phesgo, because I don't have information, but if I go back to the launch of Herceptin, Mike, the German healthcare system is a little bit like the U.S., where physicians are to receive an administration fee for IV administration. And what we saw with Herceptin was that the uptake lag in the other countries, where there wasn't that reimbursement dynamic. So perhaps a little bit more like the U.S., where you get a lag in terms of the uptake.

Over time, we did see Germany grow with Herceptin. And so, I don't believe I ever saw it catch up, but it certainly -- it has been a dynamic we've seen because of the reimbursement. And like I realize, I didn't answer another of your questions, you're asking whether any of our partners had, had a similar interpretation as to the Part D guidance and potential for read-through to ENHANZE. And I'll say we're just beginning those conversations. But to-date, we have found our large pharma partners or in a similar interpretations.

The next question is from David Risinger with Leerink Partners.

Yes. And congrats on the updates. I have 2 questions, please. So first, Halozyme previously included a quarterly side and expected new partnership deals in '23. Could you please provide an update on your expectations, Helen? I heard you comment verbally in response to a question. It sounded like your dialogue is on track and just wanted to hear you add a little more color since that slide isn't in the deck.

And then second, could you remind us about any specific products that will be impacted by ENHANZE's EU LOE in '24 and the U.S. LOE in '27?

Yes. And in the prepared remarks, we did comment that we continue to be confident in signing a new ENHANZE deal, a new deal for the HDI, which, of course, would include ENHANZE as well, and the new small volume auto injector deal with them. It remain in active dialogue across a range of different companies and types of assets that we believe would clinically benefit from the addition of ENHANZE to improve the better patient treatment experience. So hopefully, that is clear.

With regard to the European LOE, just to say we continue to receive royalties. I just want to make sure everybody understands this, own our products for a period of 10 years after the first commercial sale. And so for all the products that launched from DARZALEX and Phesgo, we expect royalty revenues for those to extend to at least 2030. And often, it can extend beyond that because of the impact from all of the co-formulation patent.

And so, in terms of the durability of our revenue, the LOE does not have an impact on that. There -- as we've previously commented, in general, there could be a step down if there is no valid patents in 2024 in Europe and 2027 in the United States. We are -- work hard with all of our partners to seek to get co-formulation patents, and we've previously commented that for all of -- for our products, and I will just highlight that for DARZALEX, while we'll continue to get some royalty revenues to at least 2030, there is a step down to half of the current royalty rate in 2024, when the European patent extend -- expires, and the same in the U.S. in 2027.

Many of our other products have got co-formulation patents, they're expected to have co-formulating patents that are going to continue to expand the time to step down. But the most important factor just to be very clear is the duration of our royalties is unaffected by any of the composition of matter patent experts.

The next question is from Corinne Jenkins with GSG.

This is Graig on for Corinne. I had one in regards to your recent positive data of your high-volume auto-injector. Can you describe how this data has helped foster partnerships and what partners or potential partners are seeing as most exciting or differentiating about it?

Yes. Thanks, Graig. And I would say the HCI data specifically is just off the press. We completed that study just a few weeks ago. And so, in terms of -- our job #1 was to file intellectual property filings based on all of the innovations that we found with regard to this novel approach that we don't believe has been done. And so we're just at the very start of actually sharing this data with partners now that all of that IP filing has been done. I will say prior to that, we were sharing with partners the prototype that we had, the intent of the study.

And I can tell you, Antares was very strong in learning more about it once we have the clinical data. So more to come over the next weeks and months on that, Graig, I know that we're in a position to safely start sharing the data, which just to reiterate, we were delighted with to show the feasibility of 10 ml injection in approximately 30 seconds, well tolerated by all of the subjects and everybody indicating they would be willing to have the injection again. We couldn't have had a better outcome with this, and I know that is exactly what the partners and potential partners we were talking at beforehand, we're looking to see. So more in the next weeks and months.

The next question is from Jason Butler with JMP Securities.

I just had a couple of follow-ups on the high-volume injector study. Helen, I think you referred to IgG as a representative biologics. Do you have preclinical data that support that there's bridging value here, i.e., success in the study has broader predictive value to other molecules? And then just thoughts on how different viscosities would act in the 10 ml auto-injector?

Jason, with regard to bridging value, I will say we do expect that each partner is going to be able to do this themselves. But what we do know is that with the viscosity, all of the immunoglobulin, it mirrors in many ways the viscosity of many of our other biologics, such as Herceptin and MabThera, and that's why it was selected. And so in terms of being able to understand and use this to model based on a lot of great PK data we have across lots of different products with a similar viscosity. I do believe there's going to be some value. But the ultimate requirement from the FDA is going to be that partners do, do their own clinical studies. And so, it was right in the sweet spot of viscosity, which is why our technical teams recommended, we select that Jason.

Great. That's helpful, Helen. And then just one more, can you just give us your current thinking about capital return and how you evaluate whether you would increase or renew a buyback versus look at other mechanisms of returning shareholder capital versus wanting to keep dry powder for business development purposes?

Yes. I'll ask Nicole to address that, if that's all right.

Yes. Thanks, Jason. So we have not changed our capital allocation plans for the year. We continue to -- and we did execute on the planned share repurchases for the year. We took the opportunity to fully execute for the amount we allocated this year of $150 million in the first quarter when we saw a nice buying opportunity. So no change in plans at this time. We continue to also very much focus on the investments in our platforms, and also in growing our revenue durability via M&A. So we continue to focus on all avenues at this time.

The next question is from Mitchell Kapoor with H.C. Wainwright.

Congrats on the quarter. As we're seeing success with DARZALEX FASPRO and Phesgo, I'm just wondering if you can kind of help us understand how future launches in the oncology space will go in terms of up-taking quicker and quicker, for instance, with the potential approval of atezolizumab and other analogy products.

Yes. I do think if the DARZALEX sets the high bar in terms of speed and pace of uptake just in terms of having been in the -- launching during COVID, nursing shortage and all sorts of challenges like that. And so, how do we more think about it is that, we look to perhaps Herceptin as a good example, where we sell over time approximately 60% share of sales in about 3 years. And what we do is, we just take a look at the different products and we identify a range around that as to what we think the pace of uptake and the peak of uptake is going to be.

So certainly, as we look at atezolizumab, what we're going to see is for -- there is plenty of settings where atezolizumab is used either on its own or with an oral therapy. In that sense, and you can imagine that for patients to be able to avoid being an infusion suite, that's going to be wonderful. And so, we would expect a strong uptake there. For patients who are in for IV therapy, still a strong value proposition, being able to reduce the overall treatment time possibly by almost an hour, which if you've been in an infusion suite and you're getting sequential chemotherapy, being shorter by an hour is very important, so we also see a nice opportunity for uptake in that setting as well.

And so, I think we'll wait for and see if Roche makes a comment as to where they believe the uptake is going to go on their earnings call. Just a couple of weeks ago, they did comment that we do expect to see strong uptake at and above what we're seeing with Phesgo, specifically expressing their pleasure with the 92% conversion in the U.K. and saying they thought levels like that in some of the European countries are certainly possible for Tecentriq as well, because of the benefit we're bringing to patients here. That reduction in treatment time, that reduction in burden really very important, and then the attendant savings for the healthcare system. So more to come as we see that launch underway, but we do expect this to be well received by patients and by the oncologist and healthcare system because of the clinical benefit.

The next question is from Mack Chandler with Jefferies.

This is Mac on for Eun. Congratulations on the quarter. One question was just for the Wave 4 products, you noted that 8 are in or have completed Phase I. Can you give any color on which ones have completed Phase I and which Wave 4 products do you expect to be able to progress into Phase III next?

Yes, we're a little bit restricted in what we can communicate on that, Mack, because that would be partner confidential information, and the partners are in the process of analyzing their data, making any development decisions. And so, they certainly don't like us to get ahead of them. So we have to wait until they make announcements on their next steps and plans. Obviously, we're delighted that 2 of the products are in Wave 3 clinical development that amivantamab and relatlimab and nivolumab. And we have a very nice array of other products that are in that, including products for thyroid eye disease, for HIV, for other neurological disorders. But we're going to have to just wait until our partners are ready to talk about their clinical development programs and recall often, they choose not to do that for competitive reasons. And so, we can't just front run them by giving any specifics there. But we are as interested as you all are in making announcements when and as soon as we can.

The next question is from Caroline Palomeque with Berenberg Capital Markets.

So just a follow-up on cash on the balance sheet. On your 10-Q, you mentioned that you have a runway for about 12 months. And I'm just wondering which strategy are you prioritizing an M&A or cash raise? And what would that look like?

Yes. Thanks, Caroline. So we ended the quarter with $348.3 million of cash and cash equivalents and marketable securities on the balance sheet. So at this time, we feel very well capitalized and continue to projected positive EBITDA and grow the cash flows. I'll also note that we ended the quarter with a net debt-to-EBITDA ratio of 2.9x. So also very nicely within -- from a leverage perspective. From an FDA perspective, and in the capital allocation perspective, in general, I mentioned our capital allocation plans remain unchanged. We'll continue to look to deploy our cash per our 3 year share repurchase plan per our investments in our platform and also in investing in M&A and the timing of that will really be when we find the right target to invest in that meets our growth criteria.

We have no further questions at this time. And this will conclude today's conference call. Thank you for participating. You may now disconnect.